January 18, 2011

He will disclose the details of ‘massive potential tax evasion’ before he flies home to stand trial over his actions
Rudolf Elmer in Mauritius
Rudolf Elmer in Mauritius: “Well-known pillars of society will hold investment portfolios and may include houses, trading companies, artwork, yachts, jewellery, horses, and so on.” Photograph: Rene Soobaroyen for the Guardian
Ed Vulliamy

The Observer, Sun 16 Jan 2011 00.06 GMT
The offshore bank account details of 2,000 “high net worth individuals” and corporations – detailing massive potential tax evasion – will be handed over to the WikiLeaks organisation in London tomorrow by the most important and boldest whistleblower in Swiss banking history, Rudolf Elmer, two days before he goes on trial in his native Switzerland.
British and American individuals and companies are among the offshore clients whose details will be contained on CDs presented to WikiLeaks at the Frontline Club in London. Those involved include, Elmer tells the Observer, “approximately 40 politicians”.
Elmer, who after his press conference will return to Switzerland from exile in Mauritius to face trial, is a former chief operating officer in the Cayman Islands and employee of the powerful Julius Baer bank, which accuses him of stealing the information.
He is also – at a time when the activities of banks are a matter of public concern – one of a small band of employees and executives seeking to blow the whistle on what they see as unprofessional, immoral and even potentially criminal activity by powerful international financial institutions.
Along with the City of London and Wall Street, Switzerland is a fortress of banking and financial services, but famously secretive and expert in the concealment of wealth from all over the world for tax evasion and other extra-legal purposes.
Elmer says he is releasing the information “in order to educate society”. The list includes “high net worth individuals”, multinational conglomerates and financial institutions – hedge funds”. They are said to be “using secrecy as a screen to hide behind in order to avoid paying tax”. They come from the US, Britain, Germany, Austria and Asia – “from all over”.
Clients include “business people, politicians, people who have made their living in the arts and multinational conglomerates – from both sides of the Atlantic”. Elmer says: “Well-known pillars of society will hold investment portfolios and may include houses, trading companies, artwork, yachts, jewellery, horses, and so on.”
“What I am objecting to is not one particular bank, but a system of structures,” he told the Observer. “I have worked for major banks other than Julius Baer, and the one thing on which I am absolutely clear is that the banks know, and the big boys know, that money is being secreted away for tax-evasion purposes, and other things such as money-laundering – although these cases involve tax evasion.”
Elmer was held in custody for 30 days in 2005, and is charged with breaking Swiss bank secrecy laws, forging documents and sending threatening messages to two officials at Julius Baer.
Elmer says: “I agree with privacy in banking for the person in the street, and legitimate activity, but in these instances privacy is being abused so that big people can get big banking organisations to service them. The normal, hard-working taxpayer is being abused also.
“Once you become part of senior management,” he says, “and gain international experience, as I did, then you are part of the inner circle – and things become much clearer. You are part of the plot. You know what the real products and service are, and why they are so expensive. It should be no surprise that the main product is secrecy … Crimes are committed and lies spread in order to protect this secrecy.”
The names on the CDs will not be made public, just as a much shorter list of 15 clients that Elmer handed to WikiLeaks in 2008 has remained hitherto undisclosed by the organisation headed by Julian Assange, currently on bail over alleged sex offences in Sweden, and under investigation in the US for the dissemination of thousands of state department documents.
Elmer has been hounded by the Swiss authorities and media since electing to become a whistleblower, and his health and career have suffered.
“My understanding is that my client’s attempts to get the banks to act over various complaints he made came to nothing internally,” says Elmer’s lawyer, Jack Blum, one of America’s leading experts in tracking offshore money. “Neither would the Swiss courts act on his complaints. That’s why he went to WikiLeaks.”
That first crop of documents was scrutinised by the Guardian newspaper in 2009, which found “details of numerous trusts in which wealthy people have placed capital. This allows them lawfully to avoid paying tax on profits, because legally it belongs to the trust … The trust itself pays no tax, as a Cayman resident”, although “the trustees can distribute money to the trust’s beneficiaries”.
Now, Blum says, “Elmer is being tried for violating Swiss banking secrecy law even though the data is from the Cayman Islands. This is bold extraterritorial nonsense. Swiss secrecy law should apply to Swiss banks in Switzerland, not a Swiss subsidiary in the Cayman Islands.”
Julius Baer has denied all wrongdoing, and rejects Elmer’s allegations. It has said that Elmer “altered” documents in order to “create a distorted fact pattern”.
The bank issued a statement on Friday saying: “The aim of [Elmer’s] activities was, and is, to discredit Julius Baer as well as clients in the eyes of the public. With this goal in mind, Mr Elmer spread baseless accusations and passed on unlawfully acquired, respectively retained, documents to the media, and later also to WikiLeaks. To back up his campaign, he also used falsified documents.”
The bank also accuses Elmer of threatening colleagues

January 10, 2011

Brazil’s moves last week to stem the rise of its currency reflect the growing anxiety in many emerging economies about inflows of hot money. Fickle deposits in banks – ancient enablers of calamitous booms and busts in credit – deserve even wider attention. It is time to prohibit all banks – and depository institutions like money market funds – from paying more than the risk-free government bill rate. In short, we need to cap rates on all short-term deposits.

This might seem an unthinkable throwback. In the US interest rate ceilings were supposedly consigned to history along with the regulation of trucks and airlines – swept away by innovative money market funds and the deregulatory tide of the late 1970s and 1980s. Banks were forced, says the folklore, to pay market rates to long-exploited depositors, instead of giving away free toasters to attract custom.
EDITOR’S CHOICE
Lord Lawson baffled by bank auditors – Jan-04
Clegg warns banks over bonuses – Dec-16
Banks urged to use profits as a buffer – Dec-17
What the Bank says – Dec-17
Financial services’ tax bill tumbles – Dec-16
In depth: UK banks – Nov-09

In fact deregulating rates on deposits was more like eliminating the inspection of truck brakes than freeing truck tariffs. Bankers had long feared that competing for deposits by paying high interest rates triggered races to the bottom in lending, while yield-chasing depositors were seen as a dangerous source of funds. Banks in good condition, the head of the Philadelphia National Bank said in 1884, did not pay interest to depositors.

Bidding for the deposits of banks with surplus funds was particularly problematic. The rules allowed anyone to start a bank in the US, but made it impossible to open many deposit taking branches. Urban banks, particularly those with Wall Street connections, competed with each other for the surplus funds of country banks. There was a nasty downside: unexpected withdrawals by country banks triggered panics. Yet exhortations by regulators and bankers’ associations to limit interest on interbank deposits were futile.

The 1933 Glass-Steagall act finally banned all payments on demand deposits by most American banks to “forestall ruinous competition”. In conjunction with tough controls on banks’ assets, rate limits worked wonders. Despite reputations for indolence, banks raised their lending by over 9 per cent a year in the 1950s and 1960s. The largest number of banks that failed in any year was just seven.

The Federal Reserve’s inability to control inflation in the 1970s, however, ultimately made deposit rate rules untenable. Banks only able to offer non-interest paying deposits, whose real value declined by the day, lost customers to money market funds that contained riskless but interest bearing T-bills. Later banks joined with their money market competitors to create a vast uninsured and unregulated funding system that fuelled an explosion of dodgy lending and made banks vulnerable to the sort of panicky withdrawals that the 1933 rules ought to have ended.

The story of US deposit regulation offers important lessons for bank regulators: pay attention to short-term liabilities – just focusing on bank assets to control contagious imprudence is unwise. Moreover controls (and explicit guarantees) have to be comprehensive and uniform: they cannot exclude the deposits of sophisticated investors or exempt intermediaries such as money market funds. Allowing large depositors to earn higher rates (under the fiction that they face more risk) is particularly dangerous when the mad music to which bankers dance heats up.

Sceptics may point to the problem Spanish banks faced last year when interbank lending markets seized up: If they had not been able to raise rates, banks might have had to take more emergency funding from the state. In fact, it was hot short-term deposits that put the banks on the brink in the first place. Comprehensive rate caps (and deposit insurance) would have made it difficult for banks to expand recklessly their lending – and protected them from a run by depositors.

Limiting rates paid to depositors also does not necessarily bestow windfall profits to banks. Rate caps have their most bite during boom times when they curb the volume of loans. Provided regulators do not allow banks to crank up their credit risks, profit margins on loans are restrained along with their volumes. Note that the deregulation that was supposed to put competitive pressure on bank profits in fact showered unimaginable wealth on bankers.

The writer is a professor at the Fletcher School of Law and Diplomacy, and author of ‘A Call for Judgment: Sensible Finance for a Dynamic Economy’

January 4, 2011

Online banking can offer convenience — and even added security. Our list of the best includes Internet-only outfits as well as brick-and-mortar banks. Here’s how to compare.
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Five years ago, Greg Downing looked into online banking but balked at his bank’s $5 monthly fee to pay bills online. This year, Downing read about a Web-only bank that charged a much lower price: free.

“I gave NetBank a chance, and I’ve never looked back,” says Downing, 33, a project manager for Acambis, which makes smallpox vaccine. Does he miss his old brick-and-mortar bank? “Only when I have a jar of coins to deposit,” he says.

As Downing discovered after he opened his NetBank account, paying bills with a mouse click is only one labor-saving feature offered by online banks. Other attributes include viewing images of canceled checks, transferring money to accounts at other banks and brokerages, and receiving e-mail alerts if, say, your balance runs low. And in the past few years, some online banks have cut the time it takes for electronic payments to clear from five business days to two.

Downing went with an online-only bank. But your best bet could be the same institutions you see every day. Brick-and-mortar bankers are also the largest online players, with the resources to bring a wide range of services to their natural customer base. (The two largest are Wells Fargo, with 6.8 million online-banking customers, and Bank of America, with 13.6 million.)
Best of both worlds
Watchfire GómezPro, an Internet research firm, ranked the top 10 online banks based on the features that consumers find most important. Competition is stiff, and that’s caused a rough parity in services. All of the banks provide the key services that customers want most, including guarantees against computer fraud and late bill payments, according to Watchfire. Among the top five, in particular, the differences are minor.

Wells Fargo is ranked first, in part because of its Quicken-style tools for viewing your spending habits. Then again, second-place Citibank is better than Wells or third-place Bank of America at “money movement” — the ability to funnel funds to another account, user or bank. Fourth-place E*Trade Bank provides excellent alerts (such as letting you know when your balance is low), but it doesn’t allow you to stop payments on checks. Reverse that for fifth-place Huntington: no low-balance alerts, but it will let you stop payments. E*Trade also does an excellent job integrating its online banking and brokerage services.

Internet-only banks are giving the big bank sites a run for their money and adding customers quickly. Because of low overhead, they often pay better rates on savings accounts. For example, a Citibank money-market account with $15,000 recently paid 1.5%. A similar account at First Internet Bank of Indiana paid 3.04%.

And an online-only bank can offer some personal touches. Adam Megacz, a dreadlocked, 26-year-old University of California at Berkeley graduate student, likes First Internet Bank’s old-fashioned customer service. “You really do get the small-bank feel when you call them,” he says. Megacz, who has been a First Internet Bank customer for five years, often transfers funds electronically through the banking industry’s Automated Clearing House network. “I can call up the bank and talk to Mark, the ACH guy,” he says.

One drawback to online-only banks is making deposits. For payroll checks, this usually isn’t an issue, because most customers use direct deposit. But if direct deposit isn’t available, you’ll have to mail deposits to the bank (envelopes are provided), use an ATM that accepts deposits for your bank or transfer funds from an account at another bank.

Of course, mailing a check will increase — by days — the time it takes for your check to clear. And, says Online Banking Report publisher Jim Bruene, “People don’t like to make deposits at an ATM,” particularly one that isn’t owned by their bank. When Megacz was living paycheck-to-paycheck two years ago, he’d send checks to First Internet Bank via FedEx or express mail, which, he says, can be a pain.

Another virtual issue: Internet-bank users may pay steep ATM fees for cash withdrawals. That’s true particularly if your financial institution does not have teller machines in your area. First Internet Bank eases the pain by refunding up to $6 in ATM fees each month for its interest-checking customers. Although NetBank doesn’t refund fees, its 8,000 machines across the U.S. are free to its customers, who can locate the ATMs at the bank’s Web site. Downing used the locater to find machines near his home in Canton, Mass.
What about safety?
The main issue consumers have with online banking is security. Banks are working to persuade customers that online banking actually adds to your financial security, says Chris Musto, vice-president of research for Watchfire GómezPro. That’s not an easy sell to consumers who see the elimination of paper statements and returned checks as a savings for the banks, with no benefit for them.

But Musto says eliminating paper is itself a safeguard. Statements can’t be lifted from your mailbox or plucked from your trash — and that’s just one way online banking offers increased security. For example, some online banks offer a service that presents your bills on the banking site. By using this feature, you can eliminate credit-card and phone statements sitting exposed in your mailbox. And e-mail alerts from some banks — such as Wells Fargo and Citibank — can notify you when large sums have been withdrawn.

You can also check your statement online anytime you wish. Online visits, Musto says, “reduce the impact of an act of fraud.” For example, if your credit card or checks were stolen, you might not discover that until your next paper statement arrived in the mail. With online banking, however, you can find unusual account activity much sooner (people check their accounts online five times a month, on average).
Features to look for
Online banking is evolving rapidly. To make sure you get a top performer, look for the following features:

No fees. About 80% of online bill-pay accounts in the U.S. are free, according to Online Banking Report’s Bruene, and “about half” of those are customers of Bank of America. Many banks offer free bill pay only in limited cases. Wells Fargo, for example, charges $7 per month if your average monthly account balance falls below $5,000. And after three months of inactivity, NetBank levies a $5 monthly fee on accounts of less than $3,000. EverBank charges $5 per month if your monthly balance is less than $1,500. First Internet Bank customers with free checking pay $4.95 a month for online bill pay, but customers with interest checking accounts (who pay $10 a month) get it free, as long as their balance stays above $500.

Good Web tools. Online banking should be simple and quick. A bank’s site should be a snap to learn and easy to navigate, and should provide essential features, such as images of your cashed checks and tools for budgeting. Bank sites have come a long way in recent years, and you don’t have to pick a big bank to get a good online experience. The best sites also provide recent transaction reports (including payments, transfers and deposits), and warn you of potential security threats, such as e-mails from phishers.

A good bank site provides scanned images — both the front and back sides — of your canceled checks. Most major banks offer this service, including every bank on the top-10 list.

Why are check images important? Let’s say you forget to record check #1454 in your register. You go to your bank’s site and read your account summary, which lists only the check number and the amount. Who’s the payee? To find out, view the check’s image.

And a good site also archives several months’ worth of account statements and check images. Archives vary considerably. For instance, Bank of America archives 18 months of statements but only 60 business days (about three months) of check images. EverBank, on the other hand, provides 15 months of statements and 13 months of images.

Fund transfers. Transferring money to your accounts at other banks and brokerages is a big convenience. Some banks let you set up automatic deductions to make regular payments to, say, an IRA at a mutual fund company.

Account aggregation. This is the ability to manage multiple accounts, including those from other banks, at your bank’s Web site. Of the top 10 online banks, only Citibank and Wells Fargo have this feature.

E-mail alerts and reminders. You’ll want to be notified if there’s excessive activity on your credit card, if someone tries to access your account with an incorrect password or even when you’re low on checks.

Budgeting. Wells Fargo’s “My Spending Report” organizes your expenditures into categories, including groceries, restaurants and lodging. It’s a great way to see how and where you spend your money. Citibank and Bank of America have similar features.

January 1, 2011

Bankers. The red carpet’s still being rolled out for them in Washington, but if there’s a stain on it they’ll pout for days. Jason Linkins documents the latest set of cheap white whines from very wealthy white men. (Discrimination lawsuits are a routine part of their legal troubles, too.) This time they’re upset because nobody from the six largest banks in America was invited to the president’s CEO Roundtable.

They’re offended because they didn’t meet with the president? From the looks of things they’re lucky not to be meeting with the warden. Their collective rap sheet includes fraud, sex discrimination, collusion to bribe public officials… even laundering drug money for Mexican drug cartels. One of them is accused of ripping off some nuns! None of this criminal behavior has stopped them from sulking over a presidential slight. Let’s review the record for these corporate malefactors, and then decide:

Which of these six banks was “America’s Most Shameless Corporate Outlaw” in 2010? (I mean, really: Nuns?)

Associated Press: “Attorneys general in Arizona and Nevada filed civil lawsuits Friday against Bank of America Corp., alleging that the lender is misleading and deceiving homeowners who have tried to modify mortgages in two of the nation’s most foreclosure-damaged states.”

Courthouse News Service: “Bank of America violated a consent judgment it signed almost 2 years ago to provide loan modifications and help relocate borrowers, the Arizona attorney general claims … Bank of America has continued to misrepresent ‘to Arizona consumers whether they were eligible for modifications of their mortgage loans, when Bank of America would make a decision on their modification requests … and whether and when Bank of America would foreclose upon their homes.'”

Consumer Affairs: “The bank is also facing at least three suits claiming that it reneged on duties it undertook by accepting $25 billion under the Troubled Asset Relief Program (TARP).”

In total, Bank of America’s last annual report lists 29 pending lawsuits against the company. Lawsuits are not proof of guilt, of course. But the bank has already paid a fine for illegally concealing $6 billion in payouts to employees, and another fine for concealing major losses at its Merrill Lynch subsidiary. (Both fines were low – not much more than a slap on the wrist – because Bank of America was on taxpayer-funded life support at the time.) BofA also confessed to committing fraud as part of a settlement this month, which the Justice Department noted was restitution “for its participation in a conspiracy to rig bids in the municipal bond derivatives market.” The Bank was also ordered to pay Lehman $590 million for illegally seizing its deposits, in violation of bankruptcy law.

From the Associated Press:

A document obtained last week by the Associated Press showed a Bank of America official acknowledging in a legal proceeding that she signed thousands of foreclosure documents a month and typically didn’t read them. The official, Renee Hertzler, said in a February deposition that she signed 7,000 to 8,000 foreclosure documents a month.

How generous has the taxpayer been to Bank of America? There was the TARP money, of course. And BofA, like other banks, has been suckling at the teat of Federal Reserve’s discount money window throughout the crisis. And, as Zach Carter noted, the bank was also one of two institutions that were the main beneficiaries of a special Fed program called the Primary Reserve Credit Facility. There were those cushy settlements with the SEC.

BofA stock was trading at $53 at the end of 2006. As of this writing the stock is trading for $13.30. But its executives have been wasting corporate money and resources buying up 419 web URLs with insulting phrases and the names of their senior executives — most of whom nobody’s ever heard of – to protect their personal reputations. No company’s ever done that before. Bob Scully “blows” (bobscullyblows.com) and Bill Boardman “sucks” (billboardmansucks.com)? Who knew?

Last year two senior executives received $9.9 million and two others received $6 million in total compensation. The guy who robbed a Bank of America branch in West Palm Beach is going to prison. The bank’s senior executives are hurt that they didn’t get invited to the Rose Garden for tea.

Rap Sheet: BofA has probably committed more foreclosure offenses than any other single institution. It deceived stockholders, and the public, about the $6 million in bonuses it paid out (during the rescue process), and was equally deceptive about Merrill Lynch’s financial status. It has also been punished for rigging municipal bond derivative bids.

“At JPMorgan Chase & Company, they were derided as ‘Burger King kids’ — walk-in hires who were so inexperienced they barely knew what a mortgage was… revelations that mortgage servicers failed to accurately document the seizure and sale of tens of thousands of homes have caused a public uproar …”

Failure to accurately document home foreclosures is illegal. It’s lousy management, too. Dimon oversaw a sloppy operation that’s going to cost his shareholders a lot of money: “JPMorgan set aside $2.3 billion of reserves to cover mortgage repurchases or litigation expenses, including some for ‘mortgage-related matters,’ the lender said.”

A whistleblower complaint alleges that the bank “sold to third party debt buyers hundreds of millions of dollars worth of credit card accounts… when in fact Chase Bank executives knew that many of those accounts had incorrect and overstated balances.” According to the complaint, “Chase Bank executives routinely destroyed information and communications from consumers rather than incorporate that information into the consumer’s credit card file … and mass-executed thousands of affidavits in support of Chase Banks collection efforts … (but) did not have personal knowledge of the facts set forth in the affidavits.” It also claims that “when senior Chase Bank executives were made aware of these systemic problems, senior Chase Bank executives — rather than remedy the problems — immediately fired the whistleblower and attempted to cover up these problems.”

There are also multiple lawsuits against Chase for allegedly manipulating the price of silver, and there is at least one report that the bank is being probed by several Federal agencies (including the Justice Department) over its trading activities in precious metals.

JPMorgan Chase “agreed to pay $25 million to settle allegations it sold unregistered securities, many of which defaulted, to the state of Florida,” as the Orlando Sentinel reported. That’s a crime. Chase was also one of several banks that paid to settle charges that it illegally propped up a failed mortgage lender. (These settlements have typically allowed the banks to “admit no wrongdoing” — a practice which should be stopped. Crimes are crimes.)

JPMorgan Chase’s behavior in Jefferson County, Alabama was pure Huey Long material. The Kingfish would’ve admired the way the bank spread more than $8 million around the county through local intermediaries so it could secure highly lucrative deals on municipal derivatives. As Bloomberg News put it, ” JPMorgan, the second-largest U.S. bank by assets, used fees on the unregulated derivative contracts — and a trip to a New York spa for one elected official — to curry political favor, a decade after the SEC adopted rules to drive out pay-to-play from the $2.8 trillion municipal bond market.”

The bank conducted this criminal behavior under Dimon’s watch. And while it “neither admitted nor denied wrongdoing,” as usual, it had to pay a three-quarters-of-a-billion dollar settlement to wrangle its way out of this snakepit of illegality.

Shameless quotes: “Judy Dimon says the crisis took a toll on him. He used to stand up to bullies who threatened his smaller twin; now he felt as if he, and bankers in general, were being bullied.” (from a New York Times profile of Dimon)

3. Citigroup

Citi’s being sued for gender discrimination by its own employees. Citi settled a class action lawsuit after illegally raising rates for credit card customers. The bank’s being sued by an independent trustee for allegedly “aiding and abetting” a Ponzi schemer.

Citi executives were given slap-on-the-wrist fines for lying to investors about $40 billion in subprime exposures, which is a criminal act. It should also be remembered that Citigroup paid $2.65 billion in 2004 to settle class action lawsuits over its alleged illegal actions in propping up WorldCom stocks in return for enormous fees.

As Citi’s annual report notes, “Citigroup and Related Parties have been named as defendants in numerous legal actions and other proceedings asserting claims for damages and related relief for losses arising from the global financial credit and subprime-mortgage crisis that began in 2007.”

Citi is still being investigated by Italian courts for possible criminal behavior in the Parmalat case, and it’s being sued by a Norwegian bank for misrepresenting its financial condition and failing to disclose material information. It’s being sued by investors for misrepresenting its underwriting of mortgage backed securities.

Shameless quotes: “Almost all of us… missed the powerful combination of forces at work and the serious possibility of a massive crisis.” (Robert Rubin) “On November 3, 2007, I sent an email to Mr. Robert Rubin and three other members of Corporate Management. In this email I outlined the business practices that I had witnessed… I specifically warned about the extreme risks that existed within the Consumer Lending Group.” (Former Citi exec Richard Bowen)

4. Wells Fargo

They illegally laundered drug money for the Mexican cartels — and nobody went to jail.

Here’s a suggestion: Read stories like “War Torn Mexico: A Population in Terror,” which begins: “Massacres, beheadings, YouTube videos featuring cartel torture sessions and even car bombs are becoming commonplace in Juarez.” Study the statistics on the violent murders – which include Federal agents, children, and “penniless immigrants” — and then remind yourself: These are Wells Fargo’s business partners.

Shameless quotes:”We’re more of a Main Street bank than a Wall Street bank.” “Of all the decisions I’ve had to make, few have been as difficult as cutting the dividend.” (Wells Fargo CEO John Stumpf)

5. Goldman Sachs

The SEC charged Goldman with fraud, and they settled the suit by admitting their marketing materials contained lies — which they called “mistakes.” They were fined by Great Britain for illegally concealing US fraud investigations. Goldman has its own gender discrimination lawsuit, too, and theirs comes complete with strippers and racist emails.

Goldman’s being sued for deceiving its clients over an offering its own employee privately (and thanks to Sen. Levin, famously) bragged was “a shitty deal.” Goldman separately paid $60 million in Massachusetts to settle charges of predatory loan practices.

After mismanagement drove Goldman into impending doom, the firm was saved by TARP funds and Federal Reserve’s Emergency Liquidity Programs. Total taxpayer aid to Goldman exceeded three-quarters of a trillion dollars. Goldman also received $13 billion in backdoor payouts through the AIG liquidation (under Tim Geithner’s supervision).

Earlier this year the Wall Street Journal reported that “U.S. prosecutors are investigating whether Morgan Stanley misled investors about mortgage-derivatives deals it helped design and sometimes bet against.” The firm’s also being sued by US Bank for fraudulently misleading it and other investors over a structured residential investment called “Tourmaline.” A group of investors in Singapore is suing the firm for designing CDOs to fail and then selling them as “conservative investments.”

The Financial Industry Regulatory Authority fined Morgan Stanley this year for failing to disclose material conflicts of interest to investors. The same agency hit the firm with a $12.5 million fine in 2007 for illegally concealing emails during customer arbitration hearings. In a particularly sleazy move, Morgan Stanley claimed that the emails had been lost on 9/11, when they were all safely stored in backup copies elsewhere.

MS was also sued by the EEOC for gender discrimination.

The firm was able to beat back an investors’ lawsuit over bloated executive pay — it set aside 62% of net revenue for employee compensation — so its executives get to keep fat bonuses for driving the company into the ground. Greed and stupidity aren’t illegal, after all.

On the other hand, their portfolio of lawsuits including one that says they defrauded nuns in Europe.

Rap Sheet: Despite numerous violations and charges, Morgan Stanley is a relatively minor player compared to its bigger colleagues. On the other hand, it illegally concealed evidence from arbitrators by using the World Trade Center attack as an excuse, and six of its own employees died in that attack. That’s simply vile. On top of that, they’re being sued by nuns.

Shameless Quotes: “When we think back on 2001, we are filled with deep sorrow and outrage over the events of September 11. Who among us will ever forget the shock and horror of that day?” (Morgan Stanley Annual Report, 2001) “When you come that close to really going out of business, call it near death, death experience, the end of the line, whatever you want to call it, your only focus is to make sure your company survives.” (former CEO John Mack)

The American people rescued these six banks. (Dimon says his bank didn’t need rescuing, but how would it have fared in a collapsed economy? And the government’s willingness to go easy in its illegalities was pretty helpful, too.) They’ve all violated the law, and they’re all suspected of even more possible illegalities. And yet they’re all pouting because they weren’t invited to the White House along with the other CEOs.

Which is our most shameless corporate lawbreaker? In any normal period of history they’d all be considered corrupt institutions, and their leaders would be ashamed to show their faces among respectable people. But these aren’t normal times, are they?

Frankly I’m stumped. They all deserve the title as far as I’m concerned. Why don’t we put it to a vote?

__________________________________

Richard (RJ) Eskow, a consultant and writer (and former insurance/finance executive), is a Senior Fellow with the Campaign for America’s Future. This post was produced as part of the Curbing Wall Street project. Richard also blogs at A Night Light.

Abstract: Due to its WTO obligations, by 2010 Vietnam must open its banking
system to the world. As a result, the nation attempted to drastically modernize its state
owned banks through partial privatization. This partial privatization, locally translated as
equitization, proposed serious challenges to the existing legal infrastructure facilitating
banks. To cope with these new challenges, in September 2009, Vietnam’s new banking
law. Decree 59/2009/ND-CP, was passed. An important change in the new banking law
is its stricter regulation on the qualifications of managers. It is suspected that such
regulation signals the nation’s resistance to surrender control over its banks and commit
to reforms. The new banking law also further relies on the problematic Penal Code and
the Criminal Procedure Code. Faulty Penal and Criminal Procedure Codes can lead to
fraudulent lawsuits and managers losing their positions. In spite of its problems, the new
banking law is workable and a step in the right direction. By relying on existing
management laws, as opposed to those introduced by the new banking law, and
upgrading the Penal and Criminal Procedure Codes, many of the potential problems
created by the new banking law can be resolved.
L INTRODUCTION
In May of 2002, Kim Brix Andersen, a Danish national, left his job as
a vice-president at the largest bank in Singapore to help manage the foreign
funds of a quarry project in Vietnam.’ The quarry project was established by
two British nationals, Peter Laking and Sean McCormack.^ In mid-2002,
two Irish investors suspected Laking and McCormack of selling their shares
in the project without their knowledge. The two Irishmen lodged a civil
claim against Laking and McCormack in the High Court of London and a
complaint against them with the Vietnamese public security ministry in
Vietnam.^ Although the case was dropped in ¿le British High Courts for
lack of evidence, the Vietnamese govemment continued to investigate the
* Juris Doctor expected in 2010, University of Washington School of Law. B.A., University of
California, Los Angeles; Ph.D., National University of Singapore. The author would like to thank
Professor Jane Winn at the University of Washington School of t^w and the editorial staff of the Pacific
Rim Law & Policy Journal for their guidance throughout the writing process.
‘ Denmark Summons Vietnamese Ambassador Over Banker’s Case, BBC MONrrORING EUROPE,
Jan. 24, 2005, available at LEXIS, The BBC Monitoring Europe File [hereinafter Denmark Summons
Vietnamese Ambassador].
^ Fair Trials International, Peter Laking-Vietnam: Update as of June 2007,http://www.fairtrials.net/index.php/cases/spotlight/peter_laking/ (last visited Feb. 24, 2009) [hereinafter
Fair Trials International].
‘ Id.

May 11, 2010

BRUSSELS—Visa Europe agreed Monday to lower some of the fees assessed for debit-card transactions in a bid to end a European Union antitrust probe.

Antitrust investigators from the European Commission have been examining for several years the fees embedded in both Visa’s and MasterCard’s systems. MasterCard settled a similar case last year.
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Visa Europe said it would cut tcross-border multilateral interchange fees.

Visa Europe—owned by European member institutions under license from Visa Inc.—said it would cut the so-called cross-border multilateral interchange fee to a maximum of 0.2% on debit-card purchases. The commission, the EU’s executive arm, says that amounts to up to a 60% reduction.

Visa Europe and MasterCard operate “four-party” systems, in which funds for a transaction flow from the purchaser to the purchaser’s bank to the merchant’s bank and finally to the merchant. Between the two banks an “interchange fee” is deducted. Big retailers have long railed against these fees, in part because they have no power to negotiate them.

The EU has said interchange fees can amount to an illegal competitive constraint under rules that forbid companies from fixing prices.

Because of limits on the EU’s jurisdiction, the 0.2% cap will apply only to transactions in which the two banks are in different European Economic Area countries, plus national transactions in nine countries where Visa Europe sets domestic fees: Greece, Hungary, Iceland, Ireland, Italy, Malta, Sweden, Luxembourg and the Netherlands. The European Economic Area comprises the 27 EU nations, Norway, Liechtenstein and Iceland.

The Visa Europe proposal doesn’t include credit cards, and the commission says its investigation into Visa Europe’s credit-card fees continues.

Still, said EU spokeswoman Amelia Torres, “This is good for consumers because it is bringing down the cost of cards.” The EU signaled it would accept the Visa Europe proposal, though it must still be formally approved under the bloc’s procedures.

Visa Europe and MasterCard argue that the fees are necessary to fund the development of their payment systems. (American Express Co. operates a three-party system, in which it is the intermediary between purchaser and merchant and thus negotiates fees with merchants; there is no interchange fee.)

Peter Ayliffe, Visa Europe’s chief executive, said the proposal will “provide much needed legal certainty to the industry.” Still, Mr. Ayliffe said the cap could be reviewed “when further data becomes available.”

The retailers’ Brussels lobby group, EuroCommerce, called the proposal a “weak interim compromise.” It said fees were still too high and credit cards should have been included in the cap.

MasterCard last year agreed to a more-comprehensive deal, capping cross-border credit-card interchange fees at 0.3% and debit-card fees at 0.2%.

Visa Europe is a separate company from Visa Inc., though it has a perpetual license to operate the Visa system in Europe.

The chief executives of some of the nation’s most troubled companies—those bailed out by the U.S. government—don’t report to work many days at corporate headquarters. They live too far away.

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Reuters

AIG’s CEO Robert Benmosche
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Robert Benmosche, chief executive of Manhattan-based American International Group, is a resident of Florida. Michael Carpenter, chief of GMAC Financial Services in Detroit, lives most of the year in Greenwich, Conn., and prefers to work in New York. And Sergio Marchionne, the Fiat SpA chief who last year also assumed the CEO role of Chrysler Group LLC, divides his time between Italy and Detroit.

The flexibility to live hundreds of miles from the office has emerged as a key perk in the bailout era. In part due to public scrutiny, companies that received U.S. assistance have cut compensation and curbed other traditional benefits such as country-club memberships, private security and personal use of corporate jets. Remote living and working arrangements are among the best things the companies can offer for posts that are fraught with political risk.

Since becoming chief executive of AIG last summer, Mr. Benmosche has maintained a head-spinning travel schedule that has kept him away from the government-controlled insurer’s downtown Manhattan headquarters for at least half of his working hours. The 65-year-old remains a resident of Florida, a state that doesn’t impose personal income tax, and he has no intention of changing his residency, according to a person familiar with his thinking.

GMAC’s Mr. Carpenter gets to the company’s Detroit headquarters about once a month. Chrysler’s Mr. Marchionne spends more than half of his time at Chrysler’s headquarters, and he owns a condo outside Detroit. Edward Whitacre, head of General Motors Co., resides in San Antonio, but keeps an apartment near GM headquarters in Detroit, where he works most of the time.

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Associated Press

Edward Whitacre, head of Detroit’s General Motors, lives in San Antonio.
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Bailed-out companies, of course, aren’t the first or only ones to be run by absentee CEOs. When Starwood Hotels & Resorts Worldwide Inc. was run by Steven Heyer from 2004 to 2007, the company set up an Atlanta office for the CEO because he didn’t want to relocate to its headquarters in White Plains, N.Y.

The management challenges associated with turning around the current crop of troubled firms are especially daunting.

Management experts disagree over whether an extreme commute is harmful. Some say a CEO needs to travel extensively to run a far-flung enterprise, and technology allows the boss to connect to headquarters at any hour. “Where the residence is doesn’t have a whole lot of meaning,” says Roger Brunswick, managing partner or New York leadership-advisory firm Hayes Brunswick & Partners.

But CEOs who travel frequently may have less time to connect in person with other top executives and rank-and-file employees. There is the additional danger of hurting employee morale, says organizational psychologist Ben Dattner, founding principal of Dattner Consulting LLC. “It’s a little bit like the general being based in a comfortable location while the troops are on the front lines,” he says.

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Associated Press

Bank of America CEO Brian Moynihan keeps a Boston office near his Wellesley, Mass., home, has an office at the bank’s Charlotte, N.C., office, and one in Manhattan at the company’s new executive floor.
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At Bank of America Corp., which recently exited the federal government’s Troubled Asset Relief Program, newly appointed CEO Brian Moynihan has three offices. He put up family photos at the bank’s Charlotte, N.C., headquarters, and he keeps space in downtown Boston, a short drive from his home in Wellesley, Mass. Mr. Moynihan also intends to spend more time working from Midtown Manhattan, where the company is completing work on a new building and new executive floor that will house the new CEO when he is in town. The seating chart for the 50th-floor lists an office as belonging to “Brian Moynihan/visitor.”

Frequent CEO absences can generate anxiety about the security of the headquarters city. During Mr. Moynihan’s first few months on the job, he spent considerable time away from Charlotte, traveling to New York and Washington. That prompted open speculation inside the company about whether the headquarters could gravitate to the Northeast, say people close to the company.

The 50-year-old doesn’t want to move his wife and children, says one person familiar with his thinking. He recently started renting an apartment in downtown Charlotte to use when he is in town. Publicly, he has ducked the question of whether he will move permanently to Charlotte, where between 10,000 and 15,000 of the company’s employees are based.
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Mr. Moynihan declined to comment. A Bank of America spokesman said many senior executives, including its CEO, “spend a great deal of time away from home and from their assigned offices.” Employees and customers “around the globe appreciate the direct contact. It’s the modern-day version of the age-old practice of management by walking around.”

People close to Mr. Moynihan say the work on the New York office doesn’t mean Charlotte will lose its designation as the bank’s home. They note that his universal office phone number will carry the Charlotte area code.

At GMAC, the movements of former CEO Alvaro de Molina caused some confusion about the company’s true home. Mr. de Molina explored moving the firm’s headquarters from Detroit to Charlotte, where he lived, and added hundreds of employees there as he recruited heavily from Bank of America. He also signed a deal to plaster the name of GMAC’s Ally Bank subsidiary on a Charlotte skyscraper.

The move raised tension inside the company even after Mr. de Molina assured Michigan Gov. Jennifer Granholm that Detroit would remain GMAC’s home, say people familiar with the situation. Mr. de Molina was ousted by directors in November, and Mr. Carpenter canceled a public unveiling of the new Charlotte office space in December, worried it wouldn’t sit well given GMAC’s receipt of about $16 billion in federal bailout funds.

A GMAC spokeswoman says current CEO Mr. Carpenter’s arrangement, in which he frequently works from New York, is not unusual. Three of the previous four CEOs have been based in New York, she says. GMAC employs 300 in the New York area and 1,300 in Detroit, out of a total of 18,800.

At AIG, Mr. Benmosche was readying a plan early this year to relocate his personal office to a skyscraper in Jersey City, N.J., which houses some of the insurer’s back-office functions, according to people familiar with the matter. Most of AIG’s top executives would have remained at the company’s lower Manhattan headquarters, even though AIG last year sold its 66-story building at 70 Pine St.
Remote Control

It’s been hard to attract chief executives to companies that have received government bailouts. Boards at GMAC, GM and AIG are letting them live in locations removed from company headquarters. See a map.

Mr. Benmosche is known within AIG for his hands-on style, and he frequently meets with employees in locales such as Houston, Los Angeles and London. He wanted to move his office across the Hudson River in part because it was closer to the New Jersey airports he frequently uses, and because working in New Jersey could help him stay outside New York on certain days, people familiar with the matter say. The CEO has homes in Suffern, N.Y., and Boca Raton, Fla., where he has been a resident since 2006, and he owns a property and vineyard in Croatia.

If Mr. Benmosche is physically present in New York for more than 183 days during a year, his world-wide income would be subject to New York taxes. Mr. Benmosche has the highest pay package—valued at up to $10.5 million annually—among bailed-out U.S. companies that fall under the jurisdiction of the U.S. pay czar.

The Jersey City plan, in development through February, was viewed negatively by several AIG insiders who were concerned about splitting the management team across two locations, according to people familiar with the matter. In March, the planned move was scrapped by AIG’s chief administrative officer.

An AIG spokesman says the company “is in the midst of reviewing its space needs in light of its sale of 70 Pine St. and the need to relocate employees from it by year’s end.” He added that while “a comprehensive study has only recently begun, AIG intends to maintain its corporate headquarters in lower Manhattan.”
—David Enrich, Sharon Terlep, Kate Linebaugh and Matt Dolan contributed to this article.

Write to Dan Fitzpatrick at dan.fitzpatrick@wsj.com and Serena Ng at serena.ng@wsj.com

April 30, 2010

The Obama Administration’s push for a “bailout tax” on banks ran into some surprising resistance over the weekend, and not from Republicans. At the G-20 confab in Washington, Treasury Secretary Timothy Geithner said the U.S. remains committed to a balance-sheet tax on banks and assumes that other countries will follow America’s lead. But Canada, Australia, Japan and Brazil, among other countries, beg to differ.

Canadian Finance Minister Jim Flaherty made the sensible case over the weekend that sucking more money out of the banking system to pay for domestic spending wasn’t the best way to foster financial stability. Canada and these other governments did not for the most part promote the housing mania and then break their national treasuries to bail out their banks. They rightly see any move to impose additional levies on their financial companies as punitive and unjustified.

By contrast, France, Germany and the U.K. are on board with the U.S. proposal, which is not surprising given how desperate the four are for revenue. Over the weekend, an unnamed French official told this newspaper that only a tax could effectively “discourage excessive risk-taking and prevent systemic risk.”

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The IMF also seems to think it makes little difference whether the revenue from these taxes goes into a fund earmarked for bailout costs or into the government treasury, as either would pay down national debt and increase a country’s capacity to pay for future bailouts. Left unmentioned is the near-certainty that the extra revenue would simply be spent, leaving no one but our spenders-in-chief better off when the next crisis comes. For a precedent, consider the Social Security “lockbox.”

Banks are on a winning streak in their battle against investor lawsuits stemming from the financial crisis, a trend that is good news for firms accused of understating the risks of securities that tanked during the financial crisis.

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The banks, including major Wall Street players, have won dismissals of lawsuits with variations of a “global financial catastrophe defense,” arguing that the blame should be placed on collapsing markets rather than any actions on their part.

The bulk of these lawsuits accused financial firms of misrepresenting the risks of a variety of financial products, including mortgage-backed securities and auction-rate securities.

Judges across the country who dismissed the suits generally concluded the investors fell short in making specific allegations of fraud.

“Judges realize that not every massive loss of investor capital is caused by fraud,” said Joseph Grundfest, a former SEC commissioner and professor at Stanford Law School. “They’re recognizing that while the financial system went astray, and that much should be done to fix it, there are differences between fraud and mistake.”

Since mid-February, federal judges have dismissed securities-fraud lawsuits against Oppenheimer & Co., Canadian Imperial Bank of Commerce, Fremont General Corp., Morgan Stanley, the Merrill Lynch division of Bank of America Corp., State Street Corp. and Bank United Corp. In each of the cases, judges ruled that plaintiffs failed to adequately allege that fraud, rather than other forces, caused losses.

The dismissal rate for these credit-crisis-era suits exceeds the historical rate for securities-fraud suits generally, according to people who follow such cases.

About 40 securities-fraud cases filed since the end of 2007 have been dismissed in early stages, compared with about 20 in which some claims were allowed to move to the evidence-gathering phase, according to statistics compiled by the D&O Diary, a widely followed industry repository that tracks securities-fraud suits. In some cases, judges have left the door open for lawyers to refile their suits with stronger allegations.

Kevin LaCroix, author of the D&O Diary, pegs the usual dismissal rates for securities-fraud cases between 33% and 40%. Typically, plaintiffs need to allege a company knowingly made false statements in connection with the sale of a security and that the investors relied on that statement in making the purchase. By his estimates, about a dozen cases have settled. None has gone to trial.

Some on the plaintiffs’ side are voicing frustration, contending judges’ dismissals are letting banks off the hook before investors have time to gather evidence. “Frequently, the large Wall Street financial institutions have escaped accountability even though those institutions fueled the subprime-market collapse,” says Robert Wallner, a plaintiffs’ lawyer with Milberg LLP, who represents shareholders in subprime-related securities litigation.

Plaintiffs lawyers have a lot at stake. They often drive securities-fraud lawsuits and take them on a contingency basis—earning a significant payout with a settlement or victory but gaining nothing short of that.

Last month, Manhattan Federal Judge William Pauley dismissed a case in which the lead plaintiff, the Plumbers & Steamfitters Local 773 Pension Fund, alleged that in 2007 and 2008, Canadian Imperial Bank of Commerce executives misled shareholders about the bank’s mortgage-backed securities exposure. Judge Pauley ruled that the plaintiff failed to allege facts indicating the losses were the result of fraud.

“CIBC, like so many other institutions, could not have been expected to anticipate the crisis with the accuracy plaintiff enjoys in hindsight,” he wrote. The plaintiff’s lawyer didn’t respond to requests for comment, and a CIBC spokesman didn’t respond to a request for comment.

James Cox, a securities-law professor at Duke University, is sympathetic to the banks’ position. “Look, every financial institution was affected by what was going on in the credit markets,” he said. “How does a plaintiff know that a financial loss is the result of a misleading statement or just world-wide macroeconomic events?”

Plaintiffs have reached some significant settlements in credit-crisis-related cases. Early last year, Merrill reached a $475 million settlement with a proposed class of plaintiffs who had alleged Merrill had understated its subprime-debt exposure. The settlement ranked among the largest securities class-action settlements ever. At the time, shortly after Merrill was acquired by Bank of America, Merrill said it wanted to avoid uncertainty and litigation costs.

Last month, a federal judge in Illinois approved a $15 million settlement between executives of General Growth Properties Inc. and a proposed class of General Growth shareholders.

Both Merrill and General Growth denied wrongdoing.

Judges have allowed a handful of other plaintiffs’ claims to go forward, including claims against Lehman Brothers Holdings Inc., Credit Suisse Group AG, and iStar Financial Inc. Earlier rulings involving suits against Countrywide Financial Corp. and Washington Mutual Inc. also allowed lawsuits to move forward; they are still pending.

“There’s still a long way to go on many of these suits,” said Adam Savett, the director of securities class-action services for RiskMetrics Group, a risk-management and research firm. While Mr. Savett acknowledges plaintiffs have struggled in recent weeks, unknowns remain in a lot of cases, like whether defendants who lost motions to dismiss will try to settle or take their chances at trial, he says. “On many of these cases, the Magic 8-Ball is saying, ‘Ask again later.’ ”

Mr. LaCroix points out that in several cases in which the plaintiffs have been allowed to go forward, they were able to point to specific questionable acts within a company, like alleged insider trading. But without the help of a whistle-blowing former company insider, this type of information can be hard to obtain early in a case, he says.

—Nathan Koppel contributed to this article.

Corrections & Amplifications
An earlier version of this article incorrectly referred to the Plumbers & Steamfitters Local 773 Pension Fund as the Plumbers & Steamfitters Local 373 Pension Fund.

It was agreed at the G20 summit in London last year that financial institutions and not tax-payers should pay for future bank rescue packages.

Since then several proposals have been put forward by various governments including the so-called “Tobin Tax” on financial transactions. Some nations, including Canada, oppose any new bank taxes.

However no country has yet introduced taxes to pay for future bailouts – arguing that unless the rules were brought in on a coordinated basis, institutions would simply “cherry pick” where they operated, moving to jurisdictions with less tough financial regulation.

The body which represents banks in the UK, the British Bankers’ Association said it was concerned about any move which would place the UK industry “at a competitive disadvantage internationally”.

“We also need to see all the detail of what is proposed – and how any new levy and tax would apply – to determine the effect it would have”, it said.

Party claims

In the light of the UK’s looming general election, the IMF proposals were likely to be used for some political point-scoring, our business editor said.

“Labour is bound to claim that the IMF is implicitly criticising the Tories’ plan to impose a new tax on banks irrespective of what other countries do – because the IMF paper says that ‘international co-operation would be beneficial’.

“I would also start to question my sanity if Gordon Brown doesn’t claim credit for putting pressure on the IMF to launch its review of possible bank taxes.”

But he added that the Conservatives would say that their bank tax proposals resembled the financial stability contribution.

And the Liberal Democrats would claim that their proposed tax on banks’ profits was similar to the second tranche of the IMF proposal.